GDP – Telecommunication PFA

In recent years, the Russian telecommunications market has demonstrated strong growth, driven by the country’s continuing strong economic performance. Until 2009, Russia experienced more than ten years of GDP growth, which equalled 7% per annum on average. In 2009 with the changing environment on the external markets, Russian GDP dropped by 7.9%.

The slowdown in the purchasing power growth of the Russian population was evident even in 2008. While in 2007 real disposable incomes of households increased by 12.1%, in 2008 the growth amounted to only 4% and in 2009 this indicator remained almost at the level of the previous year. What is more, income levels vary considerably depending on the region. In 2010 the Russian economy has started to recover after the crisis period, however, current year-end forecasts for the GDP growth have been revised down and they now stands at around 3%. Forecasts for the telecommunications market are also cautious.

The value of the telecommunications services market in Russia amounted to EUR22.7bn in 2009, declining by more than 11% year-on-year. As measured in local currency the market was even able to report an increase of 4.2%, however, the growth rate was the lowest since 2000. Despite still growing (in terms of RUB), last year the worst-affected sector was the fixed-telephony market, which declined by 1.9% after 6.4% growth in 2008. By far better result was reported on the ISP market which went up by a third over the same period.

Currently PMR expects that the Russian telecommunications market will grow by 5.7% this year. In the next years the market will continue to be triggered by the growing demand for internet and data transmission services. PMR also predicts that the fixed-line telephony market will stagnate or decrease in the medium term and mobile telephony will grow at a rate of 2-4% per year.

The mobile telephony market in Russia, which currently represents more than a half of the market value, in the coming years will not be driven by adding millions of SIM cards (often distributed for free and active for a very short period), but rather by attracting customers to actively use the services. Non-voice and value-added services will continue to gain in significance and an increasing proportion of mobile carrier revenues will come from this source. In our opinion, the development of 3G networks will bring new growth opportunities for the market and their significant impact on mobile operators’ revenues will become visible in 2011-2012.

The fastest growth in the coming three years is expected on the ISP market. The sector will benefit strongly from a further expansion of broadband in the residential sector as well as a growing demand for data transmission services from the corporate sector. Factors behind broadband’s rapid growth will be the relatively low broadband penetration in Russia, decreasing tariffs and the development of new technologies in the market.

Conversely PMR assumes that the number of new installations of fixed-lines in the coming few years will not be significant. Despite the latest actions of the regulator aimed at improving fixed voice revenues by the increase of rates of local calls, PMR does not expect the fixed-voice market to return to growth. In our opinion, the market will stagnate over the short term and will decrease due to the strengthening effects of fixed-to-mobile substitution and a further erosion of DLD/ILD revenues (liberalisation and VoIP providers).

It is also worth noting that in line with the overall macroeconomic climate, investments in the development of telecommunication networks in Russia declined by more than a third last year. Most of the fixed-line ISPs halted regional expansion plans and even 3G networks were developing at a much slower pace than expected. In H1 2010, major providers of telecommunication services in Russia declared the recovery of the investment programmes, what will also make a positive impact on the industry in 2011. PMR expects the investments to grow by at least 30% in 2010, however, they will still remain lower than in 2008. “Investment budgets of the companies will depend not only on their current financial resources but also on available investment opportunities. One of those might be a tender for LTE network development” concludes Pawel Olszynka, PMR analyst and one of the report authors.

The press release is based on “Telecommunications market in Russia 2010. Development forecasts for 2010-2014”, a report published by PMR in the second half of 2010.

Telecommunications is defined as any transmission, radio, sound or intelligence of any nature by wire, videos images, text, signals, emission or reception of signs, optical or other electromagnetic systems. In other words, it encompasses any communication over distance through telephone, television, radio, network, or other means. The industry encompasses voice, video (TV), and data services provided over wires, over the air (wireless), and via cable and satellite.

Telecommunications is an extremely fascinating and fast-paced industry that affects every aspect of human life. The importance of telecommunication services is undeniable. It has created unprecedented opportunities for all the people of the world to be informed, entertained, and be connected with each other. It enables the coordination of activities between spatially separated people, bridges cultural gaps, enables resources to be available when and where they are needed, and contributes significantly to improved efficiency in virtually every industry.

The telecommunications industry has experienced enormous growth around the world during the last decade because of technological developments and deregulation policies. It now touches more lives around the world than any other services industry. Today, the world has over 2.9 billion mobile connections, 1.85 billion fixed lines, and more than 1 billion Internet and Cable/Satellite TV users.

On the other hand, the telecommunications industry has also seen radical shifts and upheavals. The shift from wireline to wireless, circuit-switched to packet-switched networks, narrow band to broadband, and the impending dominance of IP technology are all having a profound impact upon the structure and contours of this industry. In addition, the boundaries between telecommunications, media and entertainment services are blurring, thereby forcing telecommunication companies to rethink their strategies. The entire telecommunications business model is changing from providers offering a single service, such as a wireline phone company providing just a basic voice service, to one of collaboration between different players in order to provide a comprehensive range of services.

During the last decade, the telecommunications industry has grown faster than the overall economy in almost all countries around the world, and represents a significant share of GDP. The annual worldwide turnover from the telecommunications business was US$3.2 trillion in 2007, and is estimated to be worth over US$4 trillion by 2010. However, the real impact of telecommunications is that it has transformed the way individuals, businesses and other parts of society work, communicate and interact. Different macro-economic and firm-level studies confirm higher productivity gains where good telecommunications infrastructure exists.

The economic impacts of telecommunications are enormous. Studies conducted by the UN’s International Telecommunication Union (ITU) have demonstrated that there is a close relationship between telecommunications and economic development in every country. Another report by ITU/OECD (Organization for Economic Cooperation and Development) stated that investments in telecommunication facilities generate reciprocal investment in trade, industry and agriculture at a rate that averages four times the level of investment in telecommunications itself. This factor is even more significant in developing countries, especially in Asia, Latin America and Africa, where telecommunication facilities are rapidly growing.

The social impact of telecommunications on the developing world is perhaps even more dramatic than in advanced nations. The provision of the first telephone in a village or a community has a much greater multiplier effect on economic development than the investment cost of providing that line. Globalization and outsourcing enabled through telecommunications has helped spread economic benefits to different parts of the world. This has tremendously benefited billions of people in their struggle to earn livelihood. Internet and other means of communication are not only the main source of information during catastrophic natural disasters like tsunamis and earth quakes, but also have successfully channeled much needed help to the needy.

Tag: GDP

Russian Telecommunications Market Moderate Forecasts For 2011

Impacts Of Telecommunications